Customer Lifetime Value (CLV, CLTV, or LTV) is a hugely important metric, and improving it is a primary objective for many businesses.
Improving CLV will guarantee more significant revenue, open opportunities for new business, and – done correctly – can be a pillar of sales and marketing efforts.
Luckily, we will give you the rundown on CLV and nine actionable ways to increase it.
What is Customer Lifetime Value?
CLV measures the total revenue a business can expect during the lifetime of a relationship with the average customer. This number is a benchmark for what a company can expect future customers to be worth. Comparing a CLV with customer acquisition cost (CAC) can help determine which marketing strategies are working and what is hurting your profit margins. CLV can also be improved once measured with customer loyalty programs, better customer experience, and reduced churn rate.
Customer Lifetime Value Formula
To calculate basic CLV, you need three values:
- The average order value
- The average number of purchases or purchase frequency (important for ecommerce)
- The average customer lifespan
Once you have this information, you multiply them all by one another.
Imagine a mechanic has an average service cost of $800. The average customer has 1.3 vehicles and needs service 1.5 times per year (or 1.95 services a year), and an average customer will use the mechanic for ten years. This means their CLV is $800 x 1.95 services x 10 years = $800 x 1.95 x 10 = $15,600.
This is the simple way to look at CLV. To get an even better picture of the lifetime value of a customer, you can determine CLV for different customer segments and include calculations to consider the time value of money (discounting future money to get a present value).
How to Calculate the Lifetime Value of a Customer for Subscription B2B SaaS Companies
For a subscription-based B2B SaaS company, that calculation for CLV will be very similar:
- The average yearly cost of a subscription is $26,000
- The average yearly customer retention rate is 91%, so that the average customer lifespan would be 11.1 years.
The CLV will be $26,000 x 11.1 = $288,600
How to Increase Customer Lifetime Value
1. Listen to Customer Feedback
If you have positive customer relationships, your customer base will want to continue being a customer, and customer value will grow. However, to build customer satisfaction, you must understand what drives them – what they want and need.
However, you aren’t going to get customer feedback if you do not ask. Sending out surveys, having 1-on-1 discussions, and providing helpful and interactive content for customers can all be great ways to elicit feedback. Make all your touchpoints an opportunity to elicit feedback.
Once you begin to do this, taking note of all points raised, you can collate this information across your portfolio. Finding common pain points will allow you to change your product or service to reduce the pain or optimize how you interact with your customers.
Satisfied customers don’t only stay longer, increasing your CLV; they also help you gain new customers through word of mouth and referrals.
2. Cross-Sell and Up-Sell Loyal Customers
A classic pair of techniques sought after by sales teams everywhere are cross-selling and up-selling. Your existing customers are the most likely prospects you have for cross-selling and up-selling. They already understand you and your product or service, and they’ve already parted ways with their own money to work with you.
This one should be the easiest to implement of all the points on this list. The danger, however, is that it can come across as pushy or too “salesy,” so you must time it correctly. Happy customers are more likely to be receptive.
If you have your product’s lifecycle mapped out, keep an eye on where the customers are on that journey. Once they are coming to an end, bring to their attention the products or services they can take on next – to continue getting the value they want from you.
If your sales team knows what they are doing and your product ticks all the boxes, over time, your one-time customers will bring repeat business – increasing CLV and your bottom line.
3. Foster Community
If you want to escape being a faceless services brand, you have to bring your customers into the world of your business – and help them across the customer journey to work with other users to get the most from your products and services.
When we think of community, we feel like a close-knit group with common goals and aspirations. The same is true in business, and if you can onboard customers correctly and give them a space to engage with like-minded people, you can improve loyalty and CLV.
Once they have taken part in a community, giving to and taking from it, they will be intertwined with your products and services as their connection to it will have been woven into the group they now feel a part of.
This can take the form of a community message board, staying active in social media, and other omnichannel marketing techniques.
4. Free Upgrades, Perks, and Incentives
Freebies, perks, and incentives are everyday staples of the sales and customer success toolbox, and for good reason – they work. People love to get something for nothing, even though we all know that it’s to help customer engagement and customer relationships.
Building giveaways into a more extensive test process is even better than just giving away things for nothing. If you’ve developed a new product or service for the market and want to get feedback, give it to customers for nothing. While many startups have perfected giving away “free stuff,” you don’t need to provide the moon to get a strong response.
Showing that you value your customers’ opinions is an excellent way of making them feel good – plus, you’ll get valuable feedback for minimal cost.
5. Up Your Pricing
This is a pretty simple point on the surface – but don’t let that fool you into thinking it’s easy to execute. Ask a customer if they’re happy to have their prices go up, and you’ll likely be met with a strong “no.” So how do you increase the price and, in turn, CLV without putting the customer on edge?
To start with, you can change the price for new customers only. They are unlikely to have a good gauge of your previous pricing, and given that the product or service is competitive, the price you attach to it can be justified.
This means that the new customers you are onboarding will be of higher value going forward, and this helps in the long term with CLV and in the short term with the cost of onboarding.
For your existing customers, consider adjusting the prices of products or services you want to up-sell or cross-sell. In the same way that a new customer won’t know the ins and outs of previous models, they’ll have even less idea of the cost of the products and services they haven’t used before.
6. Optimization of Your Sales and Onboarding Processes
As mentioned, increasing CLV is about getting customers to spend more with you and stick around for a long time. A customer starts with you at the point of onboarding, so if you can nail this step, you will set yourself up for a happier customer. Nothing is worse as a customer than having a sinking feeling when buying from someone.
Whether B2B or B2C, people want to achieve time-to-value as fast as possible. Once they know they want something from you, they will want you to deliver it yesterday. While your business product or service might have standard lead times, making everything as slick and quick as possible will help put a smile on any client's face and reduce overall customer churn.
Understand that one size doesn’t fit all, so tailor your onboarding process to the customer’s requirements. Some of this will be trial and error but rely on your sales and customer support teams to do what they do best and find the way forward with new customers.
7. Create a Customer Training Program
You can’t go wrong with customer training if you want to increase CLV. It’s shown that for every $1 a customer spends on training, they will go on to spend $12 on products or services related to the training – a considerable ROI.
Creating customer training programs help educate and engage your customers with your products and services – and gives you an interactive way of remaining top of mind. You can feature these parts of their personal development – so that when they complete a course and see the value it adds to them and their work, they will see your company as the provider.
The right customer training program varies from company to company, but most B2B SaaS companies looking to scale use automation to onboard and train their customers. The right digital academy can also double as a content marketing solution- teach your prospects before they buy, and you are more likely to close the deal.